This guide was created to help people who own or work at convenience stores and gas stations
more easily understand the Washington State taxes that apply to their business activities.
Please remember that state laws change on a regular basis and this guide may not reflect
all changes that occur.

This guide is intended to provide general tax information only. For more information, or for
answers to specific questions, please contact the Department of Revenue.

Common Terms Used in This Guide

Business and Occupation (B&O) Tax
The B&O tax is a gross receipts tax imposed on business activities
in Washington. There are different reporting classifications for
various business activities such as retail sales and services.
Each classification has its own tax rate. Businesses performing
more than one activity may be subject to B&O tax under more
than one classification.

Consumer
This refers to someone who uses tangible personal property or
receives services defined as retail sales. Tangible personal property
or services may be for personal use or for conducting business
activities. It is important for sellers to know who the consumer is to
correctly collect sales tax.

Gross Amount
The term “gross amount,” means either “gross proceeds of sale”
or “gross income of the business.” The gross amount includes all
consideration received without deductions for the costs of doing
business or other expenses.

Business Application
Anyone who wishes to register a business with one or more state
agencies must complete a Business License Application. Upon submitting
a Business License Application, the applicant receives a unified business
identifier (UBI) number. The person then receives a Business License
to post at the business location.

Reseller Permit/Resale Certificate
A reseller permit/resale certificate is the buyer’s written statement that goods are
being purchased for resale in the normal course of business without
intervening use. Effective January 1, 2010, the resale certificate was replaced with a reseller permit issued by the Department of Revenue.

Retail Sales Tax
This is a tax imposed on the buyer of goods and certain services.
Sellers are responsible for collecting the tax from the consumer and
remitting the tax to the Department. The term “sales tax” refers to
the combined state and local portion of the tax.

RCW
Revised Code of Washington (state laws)

UBI/Tax Registration Number
Sometimes referred to as a UBI number, registration number,
or reseller number, the unified business identifier
(UBI) number is a nine-digit number used to identify registered
businesses. The number is assigned when a person completes a
Business License Application to register with, or obtain a license from, state
agencies. The departments of Revenue, Licensing, Employment
Security, Labor and Industries, and the Corporations Division of the
Secretary of State are among the state agencies participating in the
UBI program. In most cases, your UBI number will also be your tax
registration number with the Department of Revenue.

Utensils
These include plates, knives, forks, spoons, glasses, cups, napkins,
or straws. A utensil is not a container or packaging used to transport
the food.

State Tax Overview

Registration & UBI Number

Generally, every person conducting business in Washington must
register with the state through the Business Licensing Service.
Once registered, the business owner receives a nine-digit unified
business identifier (UBI) number. Generally, this number is also the
Department’s tax registration number.

Businesses also receive the state Business License, which must be
displayed in a conspicuous place at the business location for which
it is issued. A business with more than one location must place a
license at each place of business.

Washington’s Major Taxes

Almost every person doing business in Washington is subject to
three major taxes.

They are:

Business and occupation tax

Retail sales tax

Use tax

Business and Occupation (B&O) Tax

Almost all businesses in Washington are subject to the state
B&O tax. This includes corporations, LLC’s, partnerships, and
sole proprietorships. The B&O tax is a gross receipts tax on the
business. It is measured on the value of products, gross proceeds
of sale, or gross income of the business. There are no deductions
from the B&O tax for labor, materials, taxes or other costs of doing
business.

The B&O tax rates vary depending on the tax classification into
which an activity falls. The major classifications for a convenience
store and gas station are retailing and service & other activities. The
B&O tax rate for retailing is 0.471% and the rate for service & other
activities is 1.5%. The B&O tax rate for service and other activities temporarily increases to 1.8% effective May 1, 2010. The temporary increase expires July 1, 2013.

Businesses making retail sales are subject to B&O tax under the
retailing classification, even when the sales are not subject to retail
sales tax. Example: most prepackaged food products are exempt
from retail sales tax, but the income from these sales is taxable
under the retailing B&O tax classification.

The state B&O tax is reported on the Department’s excise tax return,
which may be filed electronically. Convenience stores and gas
stations usually
file these returns on a monthly basis. Businesses
are assigned a reporting frequency by the Department when they first register their business.

Washington cities may also impose a B&O tax. However, the
Department does not administer these taxes. Please contact the
city you are located in to determine if local B&O taxes apply.

Retail Sales Tax

Collecting sales tax from customers Retail sales tax must be collected by the business on all sales
subject to the retailing classification of the B&O tax, unless there is
a specific retail sales tax exemption. Retail sales tax is comprised
of a state and local rate.

Retailers are liable for remitting the correct amount of tax, even if
they under-collected or did not collect the tax from the purchaser.
Businesses are responsible for collecting retail sales tax from
purchasers. All amounts collected are considered to be trust funds
of the state.

Retail sales tax is collected on the selling price of an item, which
includes any additional charges such as a fee for handling or any
other amount that is separately stated on the invoice.

All sales invoices or documents of sale must separately state the
retail sales tax collected. The tax cannot be included in a lump sum
price. When sales tax is not separately stated, it is presumed that
the tax was not collected by the seller or paid by the buyer.
Some items sold by convenience stores and gas stations are exempt
from retail sales tax and include the following:

Grocery type (prepackaged) food items

Newspapers

Gasoline

Remember: Sales invoices must be given to customers for all
purchases.

Paying sales tax on business purchases

Retail sales tax must also be paid by convenience store and gas
station owners on items purchased by a business for its own use.
Examples of consumable supplies include the purchase of
ice
supplies, cleaning supplies, paper towels, shop cloths, and toilet
paper used in the business location. Retail sales tax must also be
paid on the purchase of furniture and equipment.

Use Tax

Use tax is a tax on the use of goods or certain services in Washington
when sales tax has not been paid. Goods used in this state are
subject to either the sales or use tax, but not both.

Use tax is based on the value of the article or service and includes
charges for labor, materials, freight, handling, or any other amount
paid or accrued when separately stated on an invoice.

Examples when use tax is due include:

Mail order, telephone, or Internet purchases from people with no
presence in Washington.

Goods purchased with a reseller permit and then used or
consumed.

Tangible personal property acquired with the purchase of real
property.

Goods purchased in a state with no sales tax or a tax rate lower
than Washington’s.

Use tax is paid directly to the state using the use tax lines of the
excise tax return or the use tax form. The local use tax rates are
the same as the retail sales tax rates. The correct local tax rate is
determined by the location at which the goods are first put to use
in this state.

Note: Always pay use tax when an out of state vendor does not
collect retail sales tax.

Operating a Convenience Store and/or Gas Station

Purchases for Resale – Not Subject to Sales Tax

Convenience stores and gas stations purchase many items that will
be resold during the regular course of business without intervening
use. These items may be purchased without payment of sales tax.

In order to purchase items without paying sales tax, the purchaser
(store or gas station owner) must provide the seller with a reseller permit. The reseller permit is a document
that validates goods are being purchased for resale in the regular
course of business without intervening use by the business.

Examples of items that may be purchased using a reseller permit
include the following:

Food products

Paper products

Soda pop

Magazines

Motor oil

Beer

For information about obtaining a reseller permit, see our Reseller Permit page.

Purchasing Packaging Materials

Convenience stores and gas stations can purchase certain
packaging items such as paper or plastic bags, pricing labels,
paper/plastic plates, cups, lids, plastic utensils, paper napkins,
straws, and “to-go” food containers without payment of sales tax.
The purchaser must provide the seller with a reseller permit. All of these items must be sold as part of the
tangible personal property sold to customers.

Please see Washington Administrative Code (WAC) 458-20-115 for additional information on the sale of packaging materials.

Collecting Retail Sales Tax from Customers

Retail sales tax must be collected on many items sold by convenience
stores and gas stations. Following is a list of commonly sold items
on which sales tax must be collected: (This list is not all inclusive.)

Air and water for vehicle use (coin operated)

Retail sales tax is collected on the machine receipts when the equipment is owned by the convenience store and/or gas station owner. The gross income is also reported under the retailing B&O tax classification.

When the equipment is owned by someone other than the convenience store and/or gas station owner, the store owner reports the fee received from the equipment owner under the B&O tax classification service and other activities.

Alcoholic beverages: All beverages containing 0.5 percent or
more alcohol by volume.

Blocks of ice: Blocks of ice of any weight. (Ice sold in cubes,
shaved or crushed form, weighing ten pounds or less, is exempt
from sales tax).

Carpet cleaning machine rental: The rental and the purchase
of cleaning products to use with the carpet cleaning machine are
subject to retail sales tax.

Car wash

Cigarettes: Cigarettes are subject to both retail sales tax and the
cigarette tax. The cigarette tax is paid by the first person to sell,
use, consume, handle or distribute the cigarette(s) in this state. The
cigarette tax on a pack of 20 cigarettes is $3.025 and a pack of 25
is $3.78125. (Federal cigarette taxes also apply.) These taxes are
passed on to the consumer.

Convenience stores whose prepared food sales are more than
75 percent of their total food sales: Businesses with prepared
food sales that are more than 75 percent of their total food sales
are required to collect retail sales tax on all sales of food and food
ingredients, except items that are four or more servings sold in a
single container.

The formula for calculating the total sales percentage of prepared
food is the sum of gross sales of heated food, mixed/combined
food and food sold in such a way that a plate, glass, cup or bowl is
necessary to receive the food divided by gross sales of all food and
food ingredients (including all prepared food, dietary supplements
and soft drinks).

Dietary supplements: These include any product, other than
tobacco, that is intended to supplement the diet and that meets all
of the following requirements:

Is labeled as a dietary supplement with a “Supplement Facts” box.

Contains a vitamin, mineral, herb or other botanical, amino
acid, or dietary substance taken to supplement the diet by
increasing the total dietary intake, or a concentrate, metabolite,
constituent, extract, or combination of these ingredients.

Is intended for ingestion in tablet, capsule, powder, soft gel,
gel cap, liquid form; or is otherwise not represented as a
conventional food; or for use as the sole component of a meal
or diet.

Products labeled with both a “Supplement Facts” box and a
“Nutrition Facts” box are not dietary supplements. Such products
are “food and food ingredients” and are exempt from retail sales
tax unless they are taxable as a “soft drink” or “prepared food.”

Cleaning supplies

Clothing

Magazines/books/greeting cards

Prepaid telephone cards

Rental of DVD or VHS tapes

Motor oil and lubricants

Prepared food items: Includes all products that meet any of the
following criteria:

Tobacco products: These are subject to retail sales tax and the
tobacco products tax. The tobacco products tax is imposed on
the
first possessor of untaxed tobacco products in this state. The
tobacco tax is passed on to the consumer. Retail sales tax is also
paid on tobacco products by the consumer. Retailers who order
from out-of-state must pay the tax on their excise tax return on the
tobacco products line. WAC 458-20-185

When to Charge Sales Tax on a Food Item

Retailers should ask themselves the following questions to
determine when an item is considered “prepared food” and subject
to retail sales tax.

Step 1

Do I make utensils generally available to my customers; and
are my prepared food sales greater than 75 percent of my
overall food and food ingredients sales?

If the answer to both parts of this question is yes, then retail sales
tax must be collected on all sales of food and food ingredients. The
only exception is for items containing four or more servings that are
packaged as a single item, sold for a single price in an unheated
state, where the seller does not provide a utensil to the buyer.

If the answer is no to either part of the question, separately evaluate
the taxability of each item using steps 2 through 5 below.

Step 2

Is a plate, glass, cup or bowl necessary to receive the item or
do I usually provide a utensil as part of the sales transaction?

If the answer to either part of this question is yes, the sale is subject
to retail sales tax.

If the answer to both parts of the question is no, and the item is a
bakery item, the sale is exempt from retail sales tax.
If the answer to both parts of the question is no, and the item is not
a bakery item, move to step 3.

Step 3

Am I selling the item heated?

If the answer is yes, the sale is subject to retail sales tax.
If the answer is no, move to step 4.

Step 4

Did I mix or combine two or more ingredients to sell
as a single item?

If the answer is no, then the item is exempt from retail sales tax.
If the answer is yes, move to step 5

Step 5

Ask yourself the following four questions:

Did I only cut, repackage or pasteurize the product?

Is the product sold by weight or volume as a single item?

Am I a food manufacturer under NAICS, Sector 311, other than
a bakery (subsector 3118)?

Does the product contain raw eggs,
fish, meat, or poultry that
requires cooking by the consumer as recommended by the FDA
to prevent food borne illness?

If the answer to any one of these four questions is yes, the sale is
exempt from retail sales tax.
If the answer to all of these questions is no, then the sales is subject
to sales tax.
For more detail information, please refer to WAC 458-20-244,
effective June 2007.

Reporting Retail Sales Tax on the Excise Tax Return

Items sold at retail are reported on the retailing and the retail sales
tax lines of the excise tax return. The gross amount of the sale, not
including sales tax, is reported on the return.

The gross amount reported under the retailing and retail sales tax
lines must be the same. The deduction amount may differ.

Determining your Local Sales Tax Rate

People making retail sales must collect the local portion of the sales
tax along with the state portion. Local tax is reported on the excise
tax return and must be coded according to where the retail sale is
made. The sales tax coding on the tax return determines how we
distribute local taxes to governments around the state. Because local
governments depend upon these taxes to fund various services, it is
important to collect and report sales tax properly.

When selling goods or merchandise, the location for local tax
purposes is the retail outlet from which delivery is made. For
convenience stores and gas stations, local tax is based on the
location of the store or station where an item is sold.

Other local taxes to consider: The Regional Transit Authority
(RTA): A 0.9 percent tax that is collected in addition to state and
local retail sales tax on sales made in portions of King, Pierce, and
Snohomish Counties.

Sales of prepackaged food products are reported under the retailing
and retail sales tax lines on the excise tax return. A deduction from
retail sales tax is itemized on the deduction detail page (0122 –
Exempt Food Sales).

See convenience stores whose prepared food sales are more than 75 percent of their total food sales under "Collecting Retail Sales Tax from Customers."

Bakery items: Sales of bakery items are not subject to retail sales
tax unless a bakery item is sold with a utensil.

Newspapers: A newspaper is a publication of general circulation
bearing a title, issued at regularly stated intervals of at least once
every two weeks, and formed of printed paper sheets without
substantial binding. It must be of general interest, containing
information on current events. A deduction from retail sales tax is
itemized on the deduction detail page (0125 – Newspapers).

Money orders: Report the fee received from such sales on the
excise tax return under the Service & Other Activities B&O tax
classification.

Postage stamps: Any fee received for the sale of postage stamps
is reported on the excise tax return under the Service & Other
Activities B&O tax classification.

Motor Vehicle Fuel Sales

Motor vehicle fuel is gasoline or other in
flammable gas or liquid
that is used for the propulsion of motor vehicles. Motor vehicle fuel
includes the following:

Gasoline

Gasohol

Diesel

Sales of motor vehicle fuel are not subject to retail sales tax; however,
special fuel taxes do apply. Fuel taxes are paid to the distributor
when fuel is purchased, and are passed on to the consumer. The
sale of motor vehicle fuel is reported under the retailing and retail
sales tax lines on the excise tax return.

A business selling motor vehicle fuel is allowed a deduction from
the B&O retailing tax for the combined amount of state and federal
fuel taxes paid. This deduction is itemized on the deduction detail
page (0205 – Motor Vehicle Fuel Tax).

A deduction is also allowed under retail sales tax for the total amount
of motor vehicle fuel sold at the pumps. The deduction is itemized
on the deduction detail page (0119 – Motor Vehicle Fuel Sales). WAC 458-20-126

Vending Machine Sales

Vending machines, which sell a variety of items, are frequently
placed in convenience store and gas station locations. When the
owner of the convenience store or gas station owns the vending
machines, the owner is responsible for collecting and remitting
applicable taxes.

However, vending machines are often owned by someone other than the owner of the convenience store or gas station. In this case, amounts received as compensation for allowing the placement of the machines on property of the convenience store or gas station are reported under the Service & Other Activities B&O tax classification as a license to use real property.

Collecting Sales Tax through a Vending Machine

Retail sales tax applies to sales of merchandise that is sold
through a vending machine. Gross receipts are subject to retailing
B&O tax.

Examples of merchandise sold through vending machines include
items such as cigarettes, toiletries, maps, and toys. See WAC 458-20-187 for additional information.

Taxes on Games

Convenience stores and gas stations may offer entertainment in the
form of games. The convenience store or gas station may own the
games or receive commissions for allowing the games to be placed
in their business location.

Commissions: Income in the form of commissions for allowing the
placement of vending machines or games is subject to B&O tax
under the Service & Other Activities tax classification.

Lottery Tickets: The purchase of lottery or scratch tickets by a
consumer is not subject to retail sales tax. The convenience store
or gasoline station owner reports commissions received from such
sales on the excise tax return under the Service & Other Activities
B&O tax classification.

Pool/Darts/Shuffleboard: These activities are considered retail
sales and are subject to retail sales tax. Gross receipts are reported
under the Retailing B&O tax classification.

Video games/Amusement devices: This includes slots, pinball,
electronic darts, and machines or devices that permit the patron to
see, hear or read something of interest. Gross receipts are subject
to B&O tax under the Service & Other Activities tax classification. Note: Sales tax or use tax applies to the purchase of the machines.

Internet Access: Gross receipts for allowing customers access
to the Internet is subject to B&O tax under the Service & Other
Activities tax classification.

Pull Tabs and Punchboards: The “increase” (see following note)
from pull tab and punchboard games is subject to B&O tax. Those
reporting $50,000 or more per year of income from contests of
chance will report under the new Gambling Contests of Chance
($50,000 a year or greater) B&O tax classification. Businesses
reporting less than $50,000 in income per year from contests
of chance report under the Service & Other Activities B&O tax
classification. See Special Notice - Temporary B&O Tax Rate Increase

Tax Reporting for Consignment Sales

The sale of goods through a consignment arrangement is taxed in
the following manner:

A business making retail consignment sales must collect sales
tax. Generally, consignment sellers remit sales tax directly to the
Department (on behalf of the owner of the consigned goods).
Examples of items sold on consignment at convenience stores and
gas stations include crafted items such as handmade greeting cards
and handmade jewelry.

“Consignee” (or selling agent) is one who has either actual or
constructive possession of tangible personal property (although
someone else actually owns that property), or one calling for bids
on the property.

“Constructive possession” means possession of the power to pass
title to tangible personal property of others. WAC 458-20-159

Reporting instructions are provided below:

Consignee selling in the name of the owner

Report consignment sales under the Retailing B&O tax
classification. A deduction may be taken from retailing B&O
tax, if the consignee segregates such sales income and
maintains records in accordance with WAC 458-20-159. The
deduction is itemized on the deduction detail page (0215
– Consignment Sales).

Report consignment sales under the Retail Sales tax classification. Generally, the consignee is responsible for remitting the sales
tax to the Department. However, if the owner of the goods is
registered with the Department and otherwise reports sales tax,
the consignee can remit the sales tax to the owner to report. In
this case, a deduction would be allowed under retail sales tax.
The deduction is itemized on the deduction detail page (0199
– Other (write in: Sales Tax Remitted to Owner).

Credits

Small Business B&O Tax Credit (Credit ID 815) Businesses whose
B&O tax liability is below a certain level are entitled to a credit. The
credit varies depending on the amount of B&O tax due (the total of
all classifications) after all other B&O tax credits have been taken.
A small business B&O tax credit worksheet is available if you are file a paper return and are eligible for the credit. The credit is automatically calculated if you returns electronically.

B&O Tax Credit for Syrup Tax Paid (Credit ID 945)
A retailing business that pays syrup tax when buying carbonated
beverage syrup to make carbonated fountain drinks can claim a
B&O tax credit as of July 1, 2006. The credit increases each year.
The following requirements must be met in order to take this B&O
tax credit:

Syrup must be used by the buyer in making carbonated drinks
sold by the buyer.

The credit must be claimed in the tax reporting period when the
syrup was purchased.

Any unused credit may be carried forward to future reporting
periods for a maximum of one year (12 months from the end
of the tax reporting period when the credit was earned).

No credit may exceed the B&O tax due.

No refunds for credits.

The credit must be reported under the “Credits” section of the tax
return when claimed.

Other Taxes

Litter Tax

Litter tax is imposed on those industries whose products are
reasonably related to the litter problem. The tax applies to
manufacturers, wholesalers, and retailers of products falling into
the following thirteen categories:

Food for human or pet consumption

Groceries

Cigarettes and tobacco products

Soft drinks

Beer and other malt beverages

Wine

Newspapers and magazines

Household paper and paper products

Glass containers

Metal containers

Plastic or fiber containers made of synthetic material

Cleaning agents

Non-drug drugstore sundry products

The rate of the litter tax is 0.00015 (.015%) and it applies to sales
of items falling in the above categories made within this state. It is
imposed in addition to any other taxes and is reported on the Litter
Tax line on the Excise Tax Return.
Food, groceries, soft drinks, etc., are generally subject to the litter tax.
Additional items that are subject to litter tax include prepared food
and beverages, such as take-out, to-go and carry-out which will be
eaten away from the seller’s place of business. WAC 458-20-243; Special Notice Litter Tax
Exemptions for Prepared Food & Beverage

Personal Property Tax

Unless specifically exempt, all tangible personal property is subject
to the personal property tax. Personal property tax rates are the
same as for real property. Personal property includes machinery,
equipment, furniture, and supplies of businesses.

In general, the characteristic that distinguishes personal property
from real property is mobility. Household goods, certain intangibles,
and business inventories are specifically exempt from personal
property tax. However, if used in a business activity, the tax applies.

County assessors and treasurers levy and collect the property tax.
Everyone who uses personal property in a business or has taxable
personal property must complete a personal property affidavit by
April 30 each year. The affidavit must list the taxable personal
property located in the county as of 12:00 noon on January 1. The
affidavit must include the acquisition cost and year acquired for all
taxable property. The assessor uses the affidavit to value personal
property for taxes due the following year.

Every January, county assessors mail personal property affidavits
to people who have previously listed personal property. Businesses
that do not receive an affidavit or that have questions regarding
paying real and/or personal property taxes should contact their
local county treasurer’s office. The number is listed in the county
government section of the telephone directory.

Leasehold Excise Tax

The leasehold excise tax is in lieu of county property tax when
persons or businesses lease or occupy publicly-owned real or
personal property.

Public property is property owned by the federal government,
Washington State, counties, school districts and other municipal
corporations.

The amount subject to tax is generally the amount of rent, although
certain expenses and improvement may also be included in the
taxable amount.

Generally, the tax is collected by the public entity that leases the
property. However, the federal government does not collect the tax.
Therefore, persons leasing federal property must report and pay the
tax directly to the Department.

Record Keeping Requirements

Good record keeping is an important element of running a
successful business. The law requires businesses to keep complete
and adequate records for a period of at least
five years. In general,
records should be kept that provide:

The amount of gross receipts and sales from all sources,
including barter or exchange transactions.

Supporting documentation for all deductions, exemptions,
or credits claimed.

Preparing for an Audit

Audits are a routine procedure used to determine whether state
excise taxes are being reported and paid correctly. The majority of
businesses audited by the Department are chosen using statistical
methods. An audit period generally covers four years plus the
current reporting period.

During the audit, the auditor reviews the business records to verify
that taxes were properly reported. A review includes:

Income reconciliation (amount and classification)

Confirmation of any deductions or exemptions claimed

Confirmation that sales or use tax was paid on purchases
(assets and consumables)

Once the audit is complete, the auditor will discuss the results of
the audit. If you agree with the results, the auditor then prepares
the
final audit report. A
field audit manager reviews the audit before
submitting it to the Audit Division’s audit review. This can take six
to eight weeks.

If the audit results in additional taxes owed, you have 30 days from
the date the audit is mailed to pay the tax and interest in full.

If you have overpaid your taxes, you will receive a credit notice
to apply against amount due on future returns, unless you
request a refund.

You are encouraged to schedule a conference with the field audit
manager if you disagree with the audit adjustments. If you are
unable to reach an agreement, you will be informed of how to file
a formal appeal. You have 30 days from the date the audit report is
mailed to
file an appeal.